(Bloomberg) — Cut off from global credit markets, the Argentine government is selling more and more bonds in its local currency, amassing a debt that has already reached 33 trillion pesos ($174 billion) and is growing growing almost exponentially.
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In a week, the Finance Ministry will seek to roll over more than 300 billion pesos in debt, offering higher interest rates and shorter maturities to entice investors as it has done in the previous four months.
For Fabricio Gatti, a portfolio manager at Novus Asset Management in Buenos Aires who holds the notes, that tactic will only work for a few more months. In the second quarter, investors could refuse to renew their securities before the presidential election in October, potentially leading to Argentina’s second default on its local currency debt in four years. .
“Investors will become increasingly fearful of the possibility of restructuring,” Gatti said. They are hoping “that the government will continue to roll over the debt until a new government takes office, but that path is not yet guaranteed.”
Argentina’s Economic Planning Minister Gabriel Rubinstein said in a Twitter post that the peso debt is sustainable and manageable, adding that Treasury debt is held by private investors. only 8% of gross domestic product. A spokesman for Argentina’s Ministry of Economy declined to comment.
Here are some charts illustrating Argentina’s growing debt burden and its impact:
Debt bloat
Treasury reversed debt in January and sold nearly 220 billion pesos of new bonds. Much of the securities sold during the administration of President Alberto Fernandez are related to inflation, which is skyrocketing at an annual rate of almost 100%. So the inflation boom, rather than providing massive debt relief, is straining fiscal coffers even more.
Debt burden
Argentina posted a core deficit of 2.4% of gross domestic product last year. Cut off from global markets since the $65 billion restructure of foreign bonds three years ago, that deficit must be financed by the local market. And with the government trying to avoid printing money to reduce inflation, the debt is weighing on the economy.
debt wall
Argentina faced a debt wall coming due in April, with an average of about 2 trillion pesos maturing monthly through the third quarter. Creditors are increasingly reluctant to renew those securities for any length of time because of fears the government will ramp up populist spending ahead of the October election. sounded the alarm, lowering the country’s local currency rating to its default level selectively in January.
Higher rate
Juan Manuel Pazos, chief economist at TPCG Valores in Buenos Aires, said that as the debt burden grows and the threat of restructuring records, many private investors are waiting for the government to offer high interest rates. more than ever.
longer term
The Treasury has not reversed any debt with maturities of eight months or more since September, in stark contrast to earlier in the year. None of the debt sold on the open market in the past four months will come due after the parties hold primaries in August. It was the success of the left in the primaries four years ago that caused Argentine wealth to decline.
“At some point, there won’t be any carrots big enough for private sector investors to get in, and they will opt out,” Pazos said. “But we’re not there yet.”
silver lining
Much of Argentina’s local securities are held by public institutions such as state pension funds and state-owned banks, which often roll over debt. According to Adrian Yarde Buller, chief economist at Facimex Valores in Buenos Aires, private investors such as banks, mutual funds and insurance companies will also be regulated and many will be obligated to continue investing.
Investors’ debt rollbacks slowed Argentina’s money printing pace last year as it struggled to meet goals set out in a $44 billion program with the International Monetary Fund.
According to Javier Casabal, fixed income strategist at Adcap, if investors stop rolling back debt in the second quarter as some forecast, the central bank will have to continue printing money, fueling inflation and increasing pressure force the government to devalue the official exchange rate. , a local broker. That in turn adds to the pressure on debt re-recording.
“If Argentina does not manage to refinance its local debt, the market will start to worry and we could see more pronounced buybacks from mutual funds,” said Casabal. “There have been redemptions, but for now, things are still manageable.”
–With support from Patrick Gillespie and Shin Pei.
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